Authority decides to reset prices to correct 2019 UTS

The Authority has decided to reset spot electricity prices to correct the 2019 undesirable trading situation (UTS).

This means wholesale spot electricity prices from 3 to 27 December 2019 will be revised, affecting all participants in the market. The estimated reduced cost of electricity is about $80 million for the 2019 UTS period but the total impact on individual participants will depend on their hedged positions, which may change their final positions once the reset is complete.

Over 98 percent of residential consumers are on fixed contracts and will not be directly impacted by the reset of spot electricity prices.

The Authority proposed a reset of prices in its consultation document in March 2021. The consultation paper Proposed Actions to Correct: UTS 2019 canvassed the various options and highlighted the complexity of attempting to correct a situation and offer behaviour retrospectively.

While most submitters agreed the reset of spot electricity prices is the best action to take there was less consensus on the capped offer price. The Authority has analysed feedback and has decided to correct offer prices in the South Island using the proposed capped offer price of $13.70/MWh for nine South Island generating stations on the Clutha/Mata-Au and Waitaki rivers. The Authority considers using this capped offer will result in average final prices consistent with similar conditions in the past such as an abundance of water available for generation.

In response to feedback, the Authority has added Manapouri to the generating stations to which the capped offer applies.

The final prices for instantaneous reserves for the North and South Islands will also be revised to reflect the revisions to the spot energy offers from the relevant South Island hydro generators. Reserve offers will not be revised. Derivatives contracts may be resettled based on revised prices, but this will depend on the terms and conditions of those contracts.

The Authority is working with NZX and Transpower to implement the actions to correct. A core function of the wholesale electricity market is to determine final prices that purchasers pay or generators receive for electricity. The system is well set up to manage the reset of prices and the decision paper outlines the specific steps required to complete the process.

The Authority expects the reset for the 2019 UTS period to be complete by the end of 2021.

More detail about the actions to correct, submissions on the proposed actions and the Authority’s response are in the decision paper. You can also read the initial UTS claim, consultation documents, submissions and the Authority’s UTS decision on our website.

Notes for editors

1.The Authority received a claim of an undesirable trading situation (UTS) on 12 December 2019. The claim was made by seven parties - Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Energy, Oji Fibre, Pulse Energy Alliance and Vocus (the ‘claimants’).

2.An undesirable trading situation (UTS) in the electricity market is an extraordinary event which threatens, or may threaten confidence in, or the integrity of, the wholesale market that cannot be resolved under the Code. We investigate any potential undesirable trading situation and can take any action if we consider it appropriate. This could include suspending Code requirements and imposing new requirements on industry participants.

3.The Authority released a decision in December 2020 after an extensive investigation and consultation process. The Authority found there had been a UTS between 3 and 27 December 2019. The decision paper and all additional material including submissions on the preliminary and supplementary consultation papers are on the Authority’s website.

4.Under the Electricity Industry Participation Code 2010, the Authority must attempt to correct every undesirable trading situation and restore the normal operation of the wholesale electricity market as soon as possible. In March 2021, the Authority consulted on proposed actions to correct the 2019 UTS.

5.The Electricity Authority is an independent Crown Entity with a statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

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